By Ken Bender, Managing Director, and Allen Cinzori, Vice President - Software Equity Group, LLC
Deal multiples this week reflect a buyer's market rather than the seller's market we have grown accustomed to in 2004. Total Systems Services acquires Clarity to compete in a rapidly consolidating market; VerticalNet continues to seek revenue growth and profitability through acquisition, this time by acquiring B2eMarkets; Art Technology Group makes a very good strategic acquisition to offer a more robust solution to its target market but the street didn't take notice; WorkStream continues its quest to be an acquisition candidate itself by buying Bravanta; and ViryaNet purchases a company in one of its key verticals.
Total System Services (NYSE: TSS) acquires Clarity Payment Solutions
Category: Transaction Processing
Purchase Price: $53,000,000
Seller Revenue: $9,800,000 Estimate
Revenue Multiple: 5.4x
Payment Terms: Cash
SEG's Perspective:
Total Systems Services (TSYS), a $1 billion global electronic payment processing company, acquires Clarity Payment Solutions, provider of reporting, marketing, communications, compliance and risk management tools designed for the prepaid market. Clarity, now one of 9 TSYS subsidiaries, will allow TSYS to expand out of its mature current market (consumer, debit, commercial, and retail cards) into emerging prepaid markets like healthcare, payroll, insurance claims, branded gift and the like. Look for more acquisitions from TSYS as it tries to branch out into emerging foreign markets (domestic sales accounted for 92% of total revenue) and grow rapidly in a consolidating industry. In April, TSYS' largest competitor, First Data, acquired Concord EFS for $7 billion.
VerticalNet (NASDAQ: VERT) acquires B2eMarkets
Category: Supply Chain Management and Logistics
Purchase Price: $12,963,603
Seller Revenue: $8,100,000
Revenue Multiple: 1.6x
Payment Terms: Stock
SEG's Perspective:
VerticalNet, a former dotcom darling and operator of online vertical trade communities that is now a provider of strategic sourcing and supply chain software, acquires strategic sourcing software maker, B2eMarkets (B2e). B2e complements VerticalNet's previous 2004 acquisition of Tigris, a decision support optimization provider, and will bring with it sorely needed new customers. VerticalNet, with new licenses accounting for only 3% of total revenue and four customers responsible for 72% of total revenue over the last 6 months, convinced B2e to take its stock and a promissory note as payment. The united company will be competing against the recently combined Ariba/FreeMarkets, larger ERP software developers, and niche players in spend analytics, sourcing, and optimization. In an attempt to clean up its balance sheet and return to profitability, VerticalNet recently raised $3 million in a private placement. VerticalNet's $32 million market cap is a far cry from its 1999 IPO market cap of $738 million.
Art Technology Group (NASDAQ: ARTG) acquires Primus (NASDAQ: PKSI)
Category: Customer Relationship Management, Marketing & Sales
Purchase Price: $20,060,000EV
Seller Revenue: $25,700,000
Revenue Multiple: 0.8x
Payment Terms: Stock
SEG's Perspective:
Art Technology Group (ATG), provider of ecommerce software, acquires Primus Knowledge Solutions, a developer of customer relationship management, marketing and knowledge management software for managing customer queries, emails, and chat sessions. ATG saw ample cross-sell opportunities into Primus' installed base and was also attracted by Primus' 29% year-over-year revenue growth. The street didn't seem to recognize the synergies, as news of the deal had virtually no impact on Primus' share price and pushed ATG's down 12.2%. Both companies have suffered similar fates since going public in July 1999. At one time, each enjoyed a share price north of $120, but were trading below $1 on deal day.
WorkStream (NASDAQ: WSTM) acquires Bravanta
Category: Incentive Management
Purchase Price: $5,600,000
Seller Revenue: $5,600,000 Estimate
Revenue Multiple: 1.0x
Payment Terms: Stock
SEG's Perspective:
Workstream, a provider of hosted workforce management solutions, acquires another incentive management software company. This time it's Bravanta, a San Francisco startup which has raised over $46 million from large VCs. The deal comes two months after Workstream's acquisition of compensation management solution provider Kadiri, and is WorkStream's third buy this year. WorkStream's strategy is to grow through acquisition and seek a buyer when consolidated revenue reaches $35 million to $40 million. With Bravanto, WorkStream expects to add 300 blue chip customers and $9 million in revenue (a significant boost to its FY2003 $18 million total). With $10 million recently raised in a private placement earmarked for growth, look for more acquisitions from Workstream.
ViryaNet (NASDAQ: VRYA) acquires Utility Partners
Category: Human Resource & Workforce Management
Purchase Price: $5,200,000
Seller Revenue: $5,600,000 Estimate
Revenue Multiple: 0.9x
Payment Terms: Cash, Stock
SEG's Perspective:
ViryaNet, a developer of internet based software for managing service operations through browsers, wireless devices, laptops, and PCs, acquires Utility Partners (UP), a mobile workforce management solution provider for the utilities vertical. The acquisition eliminates a competitor in the utilities sector where ViryaNet has focused. ViryaNet, which hasn't had a profitable fiscal year since 1996 and currently posts a $13.3 million market cap, financed the acquisition with 52% stock and the balance in cash. ViryaNet, whose TTM revenue is $13.4 million, will get a significant boost from UP's approximately $5.6 million in revenue. The deal coincided with an announcement by one of ViryaNet's competitors, MDSI, which terminated its acquisition of mobile resource management provider @Road.
EV: Enterprise Value = equity purchase price, plus seller's interest bearing debt, minus seller's cash & cash equivalents
This report was prepared by Software Equity Group, L.L.C. (SEG), a mergers and acquisitions advisory firm serving the software, life science and technology sectors. SEG is solely responsible for its content. This material is based on data obtained from sources we deem to be reliable; it is not guaranteed as to its accuracy and does not purport to be complete. This information is not to be used as the primary basis of investment decisions. For more, please visit www.softwareequity.com, or phone (858) 509-2800.
